TFSA

Outlook members, particularly those with higher investible assets, will benefit from the rise of the TFSA contribution limit as introduced in April's Federal budget.

The TFSA provides greater savings incentives for low- and modest-income individuals because, in addition to the tax savings, neither the income earned in a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as the Canada Child Tax Benefit, the Goods and Services Tax/Harmonized Sales Tax Credit, the Age Credit, and Old Age Security and Guaranteed Income Supplement benefits.

Canadians have embraced the TFSA for their savings needs. As of the end of 2013, nearly 11 million individuals had opened a TFSA and the total value of assets held in TFSAs was nearly $120 billion.

In a low interest rate environment, the TFSA can help to boost after-tax returns as these returns are not subject to taxation. For example, an individual earning a 2-percent rate of return on a fixed income investment would realize an after-tax rate of return of about 1.4 per cent in a taxable savings vehicle (assuming a combined federal-provincial tax rate of 31.2 per cent on interest income) compared to the full tax-free 2-per-cent rate of return in a TFSA, representing a 45 per cent increase in the after-tax rate of return.*

The TFSA limit increase is retroactive to January 1, 2015, and although the Canada Revenue Agency will administer the increased amounts based on the budget announcement, some experts recommend exercising caution in making maximum contributions until the budget passes legislation.